[Update: Some offers mentioned below have expired. For current terms and conditions, please see card agreements. Disclosure: Cards from our partners are mentioned below.]
You’ve seen the stories about people who earn all kinds of free travel rewards with credit cards. But perhaps you think it’s too complicated or too much of a hassle. Or maybe you are worried about how applying for all those cards will affect your credit.
Is it really worth the trouble? Absolutely, says Brian Kelly, who started helping his family take free trips while he was only a teenager. In this edited excerpt from an interview with Kelly on my radio show, he shares how he has taken fabulous trips using reward credit cards – and how you can, too.
Gerri: Brian, I’d like to begin with how you got started and how you became known as “The Points Guy.”
Brian: It goes back to my childhood, actually. My dad was a seasoned business traveler and in the 1990s he took a job working from home. He didn’t know how to use the computer, so as the tech savvy member of our family I actually helped him book his travel. And one day, we were like, “Wow, we have all these frequent flyer miles. What do we actually do with them?”
Being the resourceful young fellow that I was, I decided to book us all on a trip to Grand Cayman when I was 13, using all of our frequent flyer miles and renting a house through VRBO. The total cost of the trip was $300 for airfare for six and the house was cheap. So every year, it was a father-son bonding (experience): “How can we up our game so we can go on these fabulous vacations every year?”
Where to Begin…
Gerri: For someone listening who has maybe earned points here and there but they haven’t really maximized them, where do you suggest they start?
Brian: The first thing is to know these aren’t frequent flyer programs anymore, they’re frequent spender programs. It’s all about how you spend every single dollar you spend. If you’re using cash or debit cards that aren’t earning you any points or miles, that’s the first step, really.
We all spend money. It’s really aligning that spend to the right credit cards. But even if you don’t want to get new credit cards, there’s still tons of different ways to maximize (rewards). There’s always a cost to accruing a mile or a point, and as long as you’re redeeming those points or miles for more than (the cost of) accruing them, you’re winning. That’s the first step.
But the credit cards are all the rage. You can just be getting new credit cards and not worry about any of the other methods if you play your cards right, no pun intended.
Gerri: Do you have any big scores? Any fabulous trips you took using reward points?
Brian: I’ve taken a lot of trips. I’ve redeemed millions of miles for myself, and family, and friends. The topper was this (past) January, I went to South Africa, business class. I used 110,000 US Airways miles, which I had accrued for about $100 through this grand slam promotion they ran a couple of years ago. It was business class, New York to Johannesburg, on to Cape Town. I did wine country, Cape Town, and then I went on to a safari. All said and done it was less than $2,000 for a $12,000 trip.
Gerri: Brian, I want to talk about credit cards, how you use them. One of the big concerns is, “What will this do to my credit?” When you see these great offers where a credit card company is offering 50,000 bonus points to sign up for a new card, do you bite?
Brian: If the offer’s juicy enough I will bite. While there are negative consequences towards getting a new credit line, getting that hard inquiry on your credit, you definitely want to minimize how many inquiries you have. [About 10%] of your FICO score is (new credit), and every time you apply for a new card, it’s going to take at least two to five points off [your credit score] per inquiry.
However, the biggest factor of your credit score is the amount of balances that you carry each month in terms of total available credit. In a way, when you get more and more credit cards and available credit, if you’re carrying low to no balances, your score will actually go up. There are definitely ways to balance out getting new cards and if the bonus is 50,000, 75,000 or 100,000 (points). I’ll gladly take $1,000 of the credit card company’s money for a two- to five-point temporary hit on my credit.
Gerri: What’s your sense in terms of what you’re hearing from not only the applications that you fill out but from the readers on your website? How easy or how difficult is it for them to get these top-tier reward cards?
Brian: During the credit crisis, the credit card companies really scaled back. They were slammed with tons of people who were overleveraged and were irresponsible with their credit. As employment is getting better and the economy is getting better, the credit card companies have really loosened up on their underwriting.
People who never thought they could get the AmEx Platinum Card for example are now getting approved. The biggest thing is, the credit card companies (don’t want to see) huge balances. If you’re over-leveraged, I absolutely do not recommend getting a rewards credit card and carrying balances on them because the APRs are much higher than other cards that may not get rewards but may have lower APRs, balance transfers, etc. But there’s so much competition in the marketplace and from everything I understand, the bonuses are going to get even better.
Gerri: And then what do you do? Do you keep the credit cards that you aren’t using or do you try to switch among different credit cards? How do you handle it?
Brian: If a credit card is not providing me value year to year, at least more value than the annual fee, I cancel it. However, before canceling it sometimes what I’ll do is actually when I get a new credit card with the same issuer for the sign-up bonus, I’ll actually have them transfer that credit line in order to open up a new card.
You can also ask the issuer if they’ll waive the annual fee. They don’t want to lose you as a customer so they’ll give you a bonus opportunity such as double points for three months. That alone could pay for the annual fee. But yes, if I haven’t had it open for a very long time, I absolutely will close it.
And it does have an impact on your credit because you have less available [credit], and once again [the second biggest factor] of your score is that available credit to usage ratio, and the length of history on the accounts [also affects your score]. But once again, if you’re paying your balances every month, those small things [may not] fundamentally change your score.
About Those 315,000 Rewards Points…
Gerri: On your blog you talk about how you opened five new cards and earned 315,000 reward miles/points. It looks like you’re pretty actively searching for the best programs.
Brian: Absolutely. The credit card companies read my site and they know that [to reach] savvy consumers, they need to stay in the game and keep us active. That’s why we’ve seen so many credit card companies offer thresholds. Spend $30,000 on British Airways Visa and they give you a companion ticket every year that could be worth thousands of dollars depending on how you use it.
I like to do a couple times a year what I call a “round of applications.” The thought is if you apply for several cards on the same day, the other issuers that you’re applying for aren’t going to see those hard inquiries. It usually takes about a day for them to hit your credit report.
I know we’re told that credit cards are going to ruin [us], but if you know how to manage them, they’re the ticket to thousands and thousands of dollars in free travel or even gift cards.
Gerri: I noticed in that same article Brian, you talk about how with several of the applications you have a line which says “application result: pending decision” and you call the reconsideration line. Tell me what that involves. What kind of questions do they ask you?
Brian: So many times when you’re denied or given “pending,” so many people just assume I didn’t get approved and I’ll try again later. But credit card companies, most of them, have these reconsideration lines and they’re staffed, many of them, 24/7 by credit analysts that you can call and talk to. They have computer models that may automatically decline someone if they’ve had too many inquiries but if you call them up and say, “I’ve got a great job and I may have a lot of inquiries but I don’t carry any balances. And if you approve me for this card, I’m going to spend a lot of money on it, and I’m going to take it away from your competitor, and give it to you. Do you want that?”
A lot of times they’ll say, “Why do you have so many cards?” Be truthful. Say I’m a savvy consumer, I love my points and that’s why I’m getting this card, it’s a great product… And if you can convince that person, I’ll be honest, I don’t have any statistic but almost all of my readers have reported great success with that method.
Gerri: I’m really amazed by how many times in that article you ended up with this “pending” (decision) or calling the reconsideration line. It looks like it’s a pretty fairly common thing and you’re right, most people would tend to freak out when they see that.
Brian: Yes. I personally hate getting on the phone, especially when it comes to a credit card company — not one of my favorite things to do. But if it’s the difference between me getting this sign-up bonus which could easily be $1,000, depending on how big it is, you better bet I’m going to pick up that call and do everything possible.
Some people think this is shady, this is clandestine, but it’s absolutely not. Be truthful. Absolutely, don’t lie on your application but say, “I love points and I love this card for these reasons. I responsibly manage my credit. Yes, I have several cards recently but I spend a lot of money or I’m planning to do a home renovation and spend a lot more.” There’s many different reasons a credit card company will approve you.
I have nine different Chase credit cards right now. They set a total limit per consumer. I hit that limit but every time I apply to get a new card I get a pending. I’ll call the reconsideration [line] and say take $10,000 off this credit line in order to open up the new one. And they’re like, “Done.” They want to get their consumers more engaged because it’s very competitive right now.
Gerri: And 315,000 points later you’re laughing all the way to the trip.
Brian: And the fun doesn’t stop there because a lot of these cards offer amazing benefits, like “elite status.” I got a Delta credit card that gave me 15,000 miles towards elite status in addition to regular miles. The Hyatt credit card gives a free night every year that you renew. So even though the annual fee is $75, I can use that free night for a $200 hotel. I’m going to keep that card open forever. As long as they give me more value than I’m paying, it’s a no-brainer.
Weighing the Costs and Benefits
Gerri: And on that note, what about annual fees because a lot of these cards that carry the high bonuses do charge an annual fee, at least the second year that’s pretty hefty. How do you do the math to decide if it’s worth it?
Brian: Most of the premium cards that give rich rewards are going to have an annual fee. But if you know how to maximize that card, for example the United Explorer Card has a $95 annual fee but that card gives you full (rental) car insurance — full coverage, not just the collision damage waiver, they actually do liability damage. That alone saves me hundreds a year in insurance. Yes, I’m shelling out $95 to save $400 or I just feel protected when I rent a car with it.
The AmEx platinum is a great example, it’s $450 a year which seems really, really high but they just came out with this new perk where you get $200 worth of airline credits each year, plus global entry, you get lounge access to a bunch of different airlines. Yes, I do shell out for the annual fees because the no-annual-fee cards generally aren’t going to give you the richest rewards.
Gerri: If you really want to maximize your points, you’re probably at least in the second year looking at paying an annual fee for these cards.
Brian: Yes. A lot of times there’s an equivalent product that’s offering a bonus and the next annual fee free so you can switch between cards. There are ways to avoid annual fees, you simply can close them or transfer them into opening a new card. But many cards, it makes sense to pay the annual fee because what they’re going to give you is worth more than it.
You can listen to the entire interview with Brian Kelly, including additional tips for maximizing hotel reward points and how to keep track of your earnings, by downloading the interview on iTunes or downloading the podcast here.
More on Credit Cards:
- The Credit.com Credit Card Learning Center
- How to Lower Your Credit Card Interest Rates
- 6 Smart Credit Card Strategies
- How Secured Cards Can Help Build Credit
- Tips for Paying Off Credit Card Debt
- How to Get a Credit Card With Bad Credit
Main image: Wayne Wilson; Inset image courtesy Brian Kelly